Investors give Cineplex a poor review
Company’s earnings met analysts’ expectations but disappointed investors
The market continues to punish Cineplex Inc., as fears persist of a long-term trend away from moviegoing, in favour of streaming services such as Netflix.
Shares in the company fell 4.7 per cent Wednesday, to close at $28.05 in Toronto, after it posted earnings that met analyst expectations, but disappointed investors.
The shares are now down about 48 per cent since reaching a record high of $54.35 exactly a year ago, on May 2, 2017.
Despite the phenomenal performance of Black Panther, which represented 22 per cent of the boxoffice take, overall attendance fell 9.3 per cent in the quarter. Revenue was essentially flat, but net income fell 34 per cent, to $15.2 million, or 24 cents per share.
Chief executive Ellis Jacob said investors selling off the shares are being “short-sighted,” and called the latest quarter a “blip” relating to the volatile nature of the movie business and a weak slate of films.
“The media keeps saying that the business is in effective decline, and it’s not,” Jacob said. “When we come out of the second quarter, I’d like to have this conversation again, because I’m pretty confident that it’s going to be a heck of a lot better than the second quarter last year.”
There are some promising signs as the company moves into the summer blockbuster season. Last weekend, Cineplex posted its highest-grossing weekend ever, thanks to the performance of Marvel’s new Avengers: Infinity War movie, which brought in a record-breaking US$630 million around world.
Cineplex expects similar success from a slew of franchise hits being released over the summer, such as Solo: A Star Wars Story, Deadpool 2 and The Incredibles 2.
The company also managed to extract more revenue per guest, reporting record box office revenue per patron (up 2.4 per cent to $10.21) and record concession revenue per patron (up 6.2 per cent, to $6.09) with the addition of recliner seating and the introduction of alcoholic beverages in VIP areas.
New segments meant to diversify away from movies, meanwhile, have grown substantially, rising 8.9 per cent, but not enough to offset the 6.2 per cent decline in box office revenue.
Jacob said that while he believes the movie business remains healthy, the company has made significant strides to reposition itself as broader entertainment company to help offset the unpredictability of film content.
“We believe in our strategic plan,” he said. “We believe in what we’re doing from a diversification perspective.”
The company now has four Rec Room locations that serve as casual meeting and gaming spaces for adults, as well as its mammoth Playdium arcade facility in Ontario. Cinema space, meanwhile, is being repurposed for a diverse range of activities, such as opera and ballet viewings, Sunday night NFL football, e-sports tournaments and even as classrooms for Ryerson University in downtown Toronto.
Rob Goff, an analyst at Echelon Wealth Partners, has a 12-month price target of $40 on Cineplex. He thinks that while growth prospects for Cineplex have deteriorated over the past year, the company’s shares at current levels present attractive value.
“We believe that the company will be able to successfully generate higher revenue per customer,” said Goff, “based on higher concessions and based on the ongoing attraction of enhanced experiences, such is the VIP, such as the recliner seating, such as the D -Box seating.”
Goff is forecasting a flat box office, modest increases in revenue per patron, plus the growth of new initiatives to come together in an attractive growth profile. He suggests the company has only scratched the surface when it comes to repurposing its space.
Despite the earnings decline, Cineplex announced a dividend increase of six cents, to $1.74 on an annual basis.